Note4Students

The Cabinet recently approved the disinvestment plan for Air India and its five subsidiaries. It is being seen as Government’s one of the boldest reform moves till date. The Government is hopeful that the decision will attract a positive response and will revive Air India. The carrier has already been surviving on a bailout package. Last month, the NITI Aayog in its report had recommended the disinvestment of Air India

Introduction

1. The Union Cabinet gave its ‘in-principle’ nod to divest stakes in Air India — a wholly owned government airline.
2. The Cabinet decided to go for Air India’s strategic disinvestment, which means the government is willing to shed a substantial portion of its stake and hand over the management of the ailing airline to the private sector.
3. The Cabinet also approved strategic disinvestment in five of Air India’s subsidiaries — its MRO unit Air India Engineering Services (AIESL), ground handling arm Air India Transport Services, Air India Charters which operates Air India Express and Airline Allied Services which operates Alliance Air and Hotel Corporation of India (which owns Centaur Hotels), along with a joint venture AISATS.
4. The three profit-making subsidiaries are
5. the low-cost airline Air India Express Ltd,
6. the ground handling company Air India Air Transport Services Limited
7. Air India’s joint venture with SATS Limited for ground handling activities in Delhi, Mumbai, Trivandrum and Bengaluru.

Analysis

Operational strategy

Group of ministers (GoM) to decide,

1. The quantum of equity to be offered,
2. ays to deal with Air India’s “unsustainable” debt
3. Housing some of the airline’s assets into a shell company.
4. This group will also decide whether to demerge three of the airline’s profitable subsidiaries and do a strategic sale of these.
5. This group decides if foreign investors and/or foreign airlines can also bid for the national carrier.

Argument For Disinvestment

1. Market competition in a note the aviation ministry has argued that since there are several Indian owned private airlines operating in the domestic and international sectors, there is no need for the government to be involved in the aviation business.
2. The Niti Aayog had submitted its recommendations on the strategic disinvestment of Air India and five of its subsidiaries,
3. Citing the carrier’s monthly losses to the tune of Rs 200-250 crore as the primary reason why such a move is required.
4. Air India’s cash deficit is expected to double from Rs 1,050 crore in 2015-16 to Rs 2,069 crore in 2016-17, according to the provisional figures in a report submitted by the ministry of civil aviation to the standing committee on transport, tourism and culture.
5. There will ease the fiscal pressure on the union government — especially in indirectly servicing the airline’s outstanding debt burden of Rs52,000 crore.
6. The airline has so far received Rs 23,993 crore of the Rs 30,231 crore equity infusion promised by the government under a financial restructuring plan in 2012.
7. It reported a loss of about Rs 3,587 crore in 2015-16, compared with a loss of Rs 5,859 crore in the previous year.
8. ₹50,000 crore could be invested in social welfare sectors instead of financing Air India’s debt.
9. Economic Survey 2017 recommended that the government privatize Air India.
10. Market share Air India’s market share has also eroded rapidly over the years due to competition from private players — from 19.4% in 2013 to around 13.3% in May 2017 — in the domestic sector, which made it unattractive to continue running its operations.
11. Workers Problem Wooing professionals to work with Air India – assuming they come from the private sector – could be challenging. Many professionals would be reluctant to work with a loss-making entity, especially in a public enterprise set-up. In India, public sector companies, albeit profitable, have rarely attracted professionals from the private sector.

Challenges

The government will have to streamline its FDI policy so that foreign investors can buy a stake in Air India. The Civil Aviation Ministry has also made a case for the sale of non-core assets first to pay off existing creditors, so that the airline becomes more attractive to private buyers.

The task of strategic disinvestment of Air India is complex.

1. The balance sheet of Air India is not only debt-ridden but has some unusual assets.  Air India showed the traits of Raja Maharaja, over the years there has been huge collection of artwork in form of sculptures, murals and paintings.
2. Valuing these assets is a challenge. The other valuable assets include premium commercial space in major cities in India as well as London, Tokyo and Hong Kong.
3. Air India owns prime slots of the takeoff and landing at the major international airports. Air India’s association with Star Alliance that provides global connectivity to the airline too has commercial value.

The sale’s purpose should guide the sale’s rules.

1. Air India’s debt, now about $8 billion, is growing unsustainably. It was bailed out with $5.8 billion of taxpayer money in 2012. The sale’s purpose should be to compensate taxpayers for shouldering the burden of keeping the national carrier afloat. Air India’s disinvestment could deliver this if it results in reduced government interference and increased competition. Remember, most taxpayers are also flyers.
2. Competition in the air travel market will not increase if Air India gets acquired by a private airline in India. The rules should provide foreign airlines a level playing field. Sharp scrutiny of objections can expose and thwart hidden vested interests.

Conclusion

1. The need of the hour is a good assessment of Air India’s assets and liabilities plus a workable plan so that the airline can be made attractive to any prospective buyer.
2. This decision does convey to the investors that India is serious about reforms and will not throw good money into something not working out well.

“Government should only be a facilitator of business rather than doing business itself”. Analyse the statement in the light of disinvestment of air India